The Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter (FIL) to address the engagement by FDIC-supervised institutions in crypto-related activities. All FDIC-supervised institutions that intend to engage in, or that are currently engaged in, any activities involving or related to crypto assets (also referred to as “digital assets”) should notify the FDIC.
By “crypto asset,” the FDIC refers generally to any digital asset implemented using cryptographic techniques. The term of “crypto-related activities” for the purposes of the FIL includes acting as crypto-asset custodians; maintaining stablecoin reserves; issuing crypto and other digital assets; acting as market makers or exchange or redemption agents; participating in blockchain- and distributed ledger-based settlement or payment systems, including performing node functions; as well as related activities such as finder activities and lending. The FDIC clarifies that other activities may be included in this definition at a later date.
Prior to engaging in, or if currently engaged in, a crypto-related activity, an FDIC-supervised institution promptly should notify the appropriate FDIC Regional Director. The initial notification to the FDIC Regional Director should describe the activity in detail and provide the institution’s proposed timeline for engaging in the activity. The FDIC indicates that it may request further information from the FDIC–supervised institutions engaged in crypto-related activities to assess the safety and soundness, consumer protection, and financial stability implications of such activities.
Additionally, the FDIC published a list of risk considerations for Safety and Soundness; Financial Stability; and Consumer Protection.
Safety and Soundness: The FDIC highlights beneficial ownership issues; anti-money laundering (AML)/countering the financing of terrorism (CFT) implications and concerns related to crypto assets, including reported instances of crypto assets being used for illicit activities; information technology (IT) and information security, including IT risk exposure and whether sufficient frameworks are available, in relation to the level of risk, to maintain the confidentiality, integrity, and availability of information systems; and credit risk exposure posed by the crypto asset or the structure that the asset is held in, including whether it is possible to measure the degree of asset quality, credit risk, and counterparty risk exposure.
Financial Stability: The FDIC is concerned that certain crypto assets or crypto-related activities may pose systemic risks to the financial system. Systemic risks could be created as an unintended consequence resulting from the structure of a crypto asset or through the interconnected nature of certain crypto-related activities.
Consumer Protection: The FDIC is concerned about risks to consumers related to crypto-related activities. For example, the FDIC is concerned about the risk of consumer confusion regarding crypto assets offered by, through, or in connection with insured depository institutions, as consumers may not understand the role of the bank or the speculative nature of certain crypto assets as compared to traditional banking products, such as deposit accounts. In addition, insured depository institutions face risks in effectively managing the application of consumer protection requirements, including laws related to unfair or deceptive acts or practices, to new and changing crypto-related activities.
A copy of the letter can be found on the FDIC’s website.
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